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March, 2011 Newsletter

+++++++++++ March 1, 2011 +++++++++++++++++++

CONTENTS:

Introduction: Resales Climb, New Sales Drop
Mortgage Rate Update: For Month, Rates Up Again
This Month's Tip: Keeping it Under Control

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Introduction: Resales Climb, New Sales Drop

Sales figures for January are in and there were surprises
in both resale and new home sales.  Resales were a bit
higher than expected and new home sales, where a drop was
forecast, were even lower than was expected. 

The uptrend in existing-home sales continues, with January
sales rising for the third consecutive month with a pace
that is now above year-ago levels, according to the National
Association of REALTORS®.

Existing-home sales, which are completed transactions that
include single-family, townhomes, condominiums and co-ops,
increased 2.7 percent to a seasonally adjusted annual rate
of 5.36 million in January from a downwardly revised 5.22
million in December, and are 5.3 percent above the 5.09
million level in January 2010. This is the first time in
seven months that sales activity was higher than a year
earlier.

Lawrence Yun, NAR chief economist, said the improvement is
good but could be better. “The uptrend in home sales is
consistent with improvements in the economy and jobs, which
are helping boost consumer confidence,” Yun said. “The
extremely favorable housing affordability conditions are
a big factor, but buyers have been constrained by unnecessarily
tight credit. As a result, there are abnormally high levels
of all-cash purchases, along with rising investor activity.”

A parallel NAR practitioner survey shows first-time buyers
purchased 29 percent of homes in January, down from 33 percent
in December and 40 percent in January 2010 when an extended
tax credit was in place.

Investors accounted for 23 percent of purchases in January,
up from 20 percent in December and 17 percent in January 2010;
the balance of sales were to repeat buyers. All-cash sales rose
to 32 percent in January from 29 percent in December and 26
percent in January 2010.

In new construction, sales of new single-family houses in
January 2011 were at a  seasonally adjusted annual rate of
284,000, according to estimates released jointly February 24th
by the U.S. Census  Bureau and the Department of Housing and Urban
Development.  This is 12.6 percent (±11.2%) below the revised
December rate of 325,000 and is 18.6 percent (±15.4%) below the
January 2010 estimate of 349,000.

The median sales price of new houses sold in January 2011 was
$230,600; the average sales price was $260,300. The
seasonally adjusted estimate of new houses for sale at the end
of January was 188,000. This represents a supply of 7.9
months at the current sales rate.

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Mortgage Rate Update: For Month, Rates Up Again

The overall trend in mortgage rates continued to be in an
upward direction in the month of February.  30-year fixed-
rate mortgages averaged 4.95% at the end of the month
according to mortgage company Freddie Mac.  The average
at the beginning of the month was 4.81%.  In 15-year
fixed-rate mortgages, the average rose from 4.08% at the
beginning of February to an average of 4.22% in the period
that ended February 24th.  It is important to note, however,
that both the 30-year and 15-year averages declined from
the previous week.

In the short term at least, analysts are leaning toward rates
either remaining stable or perhaps declining a bit. As always,
in volatile times such as these, it is wise to be prepared to
move should an opportunity arise.
For current average mortgage rates, see the
rates page.

For more information on mortgages, visit the
Mortgage Section
++++++++++++++++++++++++++++++++++++++++++++++

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++++++++++++++++++++++++++++++++++++++++++++++

This Month's Tip: Keeping it Under Control

The subtitle of this month's tip should be "Don't buy more than is
affordable." It sounds so basic, but during the big real estate run-up of
just a few years ago, it was advice that, unfortunately, millions of
people did not hear. Many of the problems that we are seeing in the
housing and mortgage markets stem from a single fact: Too many people
bought more house than they could afford. Blame has been assessed and
discussed all across the board--the purchasers, the banks, the
mortgage brokers, the builders, the appraisers--so there is no need to
discuss blame here. Rather, we think that it is more important to concentrate
on what can be done to prevent a similar situation arising from a buyer
looking to purchase a home today. The huge bonus is that with prices as
depressed as they have been in many areas, it is a golden opportunity
for the buyer.

Wants vs. Needs

One of the first culprits in the misstep of buying more house than is affordable
is the misunderstanding of the differences between what you NEED in a home and
what you WANT. Although the difference has been badly blurred in the last few
years, needs and wants are definitely not the same thing. A need is a feature
in a home that, without which, the house would not be feasible. For example,
a minimum number of bedrooms needed for a large family. Another example of
a need might be a garage large enough to store equipment necessary for a job.
A want, on the other hand, is something that while it would be nice to have
included has no real bearing on the liveability of a property. An example
here would be a stainless steel kitchen. Nice to have, but the food prepared
there would not taste any different and therefore would not be a necessity.
The easiest and quickest way to push yourself out of affordability is by
insisting on items that you would like (but truly do not need), all the
while rationalizing it with statements like "I absolutely MUST HAVE the
stainless kitchen with the granite countertops!" You don't, and if it
bumps the house out of affordability, you can't.

Following the Trend

Unlike some other investments, the trend may not be your friend. This is
another sure way to negatively impact what is affordable: Being a trend
follower. FOllowing the herd will almost always cost you extra, whether
it is the trendy home style, or neighborhood, or builder or specific
amenities. If "everyone" wants to go with the trend, it becomes, in many
cases, an issue of high demand and low supply, where even the most simple
economics demands that prices will be higher. It is also important to
consider that trends change, meaning the house you bought that had all
the trendy features may be a dinosaur 10 years later when it comes time
to sell.

Affordable Down the Line

THe housing landscape is strewn with unfortunate purchasers who bought
homes that were affordable when they moved in but which became unaffordable
at some point in the future. This often is due to one (or more) of these
factors:

+ Artificially low mortgage rates at inception that resent to higher (and
out of reach) rates. We are seeing uncountable instances of this problem
as we speak.

+ Banking on holding out until income increases enough to make the payment
affordable but the increase in earning never comes.

+ Having to deal with a big adjustment--such as a job loss or the loss of
one of the borrowers.

The more conservatively you approach your home purchase and mortgage, the
better the chance you will be able to weather potential issues down the road.

So, What IS Affordable?

Obviously, this varies a good bit from individual to individual. What makes
perfect sense for one buyer may be inadvisable for another. We have found,
though, that there are some time-tested parameters that will help to both
determine and maintain affordability.

Downpayment:

A downpayment gives you a hedge against price fluctuations but also works to
reduce your monthly payment. The more you devote to your downpayment the bigger
the rewards in safety as well as a more comfortable monthly payment. If you
cannot afford a reasonable downpayment (a minimum of 5-10% but more if at all
possible) perhaps it is a better strategy to wait a while before making a
home purchase.

Realistic Qualifying Ratios

Probably the most important determining factor in whether or not a mortgage will
be affordable to you are the qualifying ratios that the lender will develop shortly
after applying for a mortgage. These take into account your debt ratios, both with
and without your housing expense, in relation to your monthly income. Although
this can vary a bit, traditionally your monthly obligations without your mortgage
payment should be no more than 28% of your gross monthly income and your monthly
obligations with your mortgage payment should be no more than 36% of your monthly
income. Unfortunately, these ratios got pushed to the wayside in recent years and
has had much to do with people finding themselves shackled to monthly payments that
they simply cannot afford.

Avoid Non-standard Mortgages

Another big contributing factor to the housing decline were the big increases in
what can be described as "non-standard" mortgages. Included here woud be no
documentation loans (where you had to show no proof of income or expenses),
negative amortization loans (where your mortgage balance went UP every month,
even though you were making payments), "teaser rate" mortgages where you qualified
for a mortgage with an artificially low payment which then re-adjusted to a much
higher rate (and monthly payment) and loans which required absolutely no cash
down, including settlement costs. A very high percentage of the foreclosures
that are so impacting the housing industry (and dropping prices) are the result
of just these type of loans. Although these mortgages are considerably harder
to find today, they are still available and a purchaser should likely avoid them
at all costs.

Summing Up

The housing mess that we find ourselves in did not happen in a vacuum. It was
a series of mistakes and missteps by virtually everyone involved that led us
to where we are today. Had we stuck with the time-tested parameters that served
us well for decades and not thought that somehow "this time it is different,"
we very likely would not be facing the corrections we are now seeing. For an
individual home purchaser the lesson is simple: Do not make the same mistakes
that have cost others dearly.



Next Month's Tip: Common Sense Mortgages

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The Home Buying Checklist

Many of our visitors have said that one of the most valuable
aspects of the Home Buyer's Information Center is the
Buying Checklist, where they can make sure that all
the bases have been touched.
You can find the checklist
here
.

As always, if you have suggestions for improving the
site, or topics you would like to see addressed in
this newsletter (or, if you have used the Home Buyer's
Information Center to successfully purchase a home),
drop us a quick line
here.

A special thanks to all those who have written to let us know
that they have found the Home Buyer's Information Center a
helpful resource in their buying process.

Have a great month and good luck in all your endeavors!

The Team at the Home Buyer's Information Center

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